Dispatch #207: The Macro Test for Crypto

Aug 30 4 min read

Dispatch

In this patch of your weekly Dispatch:

New Bitcoin Millionaires 🫰
Vitalik vs DeFi 🆚
Japan’s Metaverse 🌐

The Big Idea

Will 2024 End on a High Note for Crypto?

We love it when our readers expertly spot the week’s most influential development. This time when we asked, you put the spotlight on Bitcoin ETFs, which were on a week-long streak of inflows. That streak has been cut short, prompting us to shift our focus to bigger issues – like macroeconomics. Citi analysts’ reality-check report addresses these challenges for crypto:

Since the launch of spot Ether ETFs on July 23, the cryptocurrency market has underperformed, with Bitcoin and Ether ETFs experiencing net outflows, reduced demand, and negative futures funding rates. Despite declining network activity and subdued search interest, unique daily users on the Ethereum network have increased by 34% across layer-1 and layer-2 chains, and stablecoins have shown resilience with rising market caps. Citi notes that future ETF flows may hinge on the broader economic outlook.

Market analysts, including those from QCP Capital and Nansen, are cautiously optimistic about a potential recovery in cryptocurrencies, led by Bitcoin, as central banks prepare to ease monetary policy with anticipated rate cuts. This shift is expected to inject fresh liquidity into financial markets, boosting risk assets like equities and crypto despite ongoing uncertainties. Nansen analysts highlight the “Fed put” – the belief that the Federal Reserve will step in to support markets, as a key driver of this potential bullish trend.

So, it’s a “balanced view” from analysts in the banking and crypto sectors. Leading crypto news outlet Cointelegraph delved into Bitcoin’s potential breakout, where Nexo’s Kristian Haralampiev shared a similar opinion. Which brings us back to the after-hours of the Dispatch newsroom last Friday. Fed Chairman Jerome Powell served a healthy dose of optimism: “The time has come to adjust”, he said – words that were anticipated by many in the crypto world. Are we soon to reap fruit after year-long struggles with inflation? That’d be big.

The Latest In…

No Dips for Stablecoins

Time for an accolade that’s been in the making this year. The stablecoin market capitalization has reached a new all-time high of $168B after 11 consecutive months of growth, according to data from DefiLlama. This surpasses the previous peak of $167B set in March 2022. Crypto analyst Patrick Scott, known as “Dynamo DeFi,” suggests the increase could indicate new money entering the crypto market. Leading the growth is Tether (USDT), which hit a market cap of over $117B in August. Need more context?

The number of digital asset millionaires has nearly doubled over the past year, with 172,300 people now holding over $1M million in cryptocurrencies, according to Henley & Partners. Bitcoin millionaires have more than doubled to 85,400, reflecting significant gains in the crypto market.

The Latest In…

Metaverse: Japan’s “New Capitalism”

Japanese Prime Minister Fumio Kishida announced plans for Japan to become a leader in Web3 innovation during his keynote at the WebX2024 conference on August 28. Kishida highlighted recent tax reforms, including the elimination of taxes on unrealized crypto gains, aimed at supporting Web3 startups and attracting international entrepreneurs. He also introduced new legislative changes allowing limited partnership firms to invest in digital assets. These moves are part of Kishida’s “New Capitalism” policy, which seeks to use innovative technologies like Web3 to drive economic growth and address social issues. The Prime Minister praised the private sector's adoption of blockchain technologies and reaffirmed the government’s commitment to nurturing the Web3 ecosystem.

The Latest In…

DeFi Gets Feedback from Vitalik

Ethereum co-founder Vitalik Buterin sparked controversy with his recent comments questioning the potential of decentralized finance (DeFi) to drive significant growth in the crypto sector. Buterin argued that DeFi’s impact is limited and dependent on Ethereum's market.

His remarks have drawn criticism from DeFi proponents like Arthur Cheong and Sam Kazemian, who contend that DeFi is crucial to Ethereum’s value and overall success. They argue that DeFi’s role is integral to Ethereum’s usage and value.

Despite the backlash, Buterin remains a supporter of decentralized technologies. He emphasizes the importance of sustainable DeFi applications and advocates for expanding decentralization into other tech areas, such as messaging and social media.

The Latest In…

Nvidia Wins 2024?

Bitcoin has commenced a flight to recovery above $60,000, enjoying a nice little push, potentially from the neighboring tech sector. Nvidia’s second-quarter earnings exceeded expectations with a record $30B in revenue – $2B above estimates, announced during the earnings call on August 28. CFO Colette Kress attributed the growth to robust sales of graphics processing units and strong demand for the upcoming “Blackwell” chips. The company also reported significant gains in the Chinese market, with Nvidia’s projection of $32.4B in Q3 revenue further lifting investor sentiment. This performance, marking a continuation of record-breaking quarters, reassures the AI sector and positions Nvidia as a leading force in the industry.

The Week’s Most Interesting Data Story

Tranquility in the Bitcoin Charts?

Spot Bitcoin ETF inflows have recently begun to reflect Bitcoin's price more closely in the chart below. This coincided with a lower sell-side risk ratio as highlighted by Glassnode analysts. This decline in the ratio indicates that most Bitcoin transactions are occurring close to their original acquisition prices, reflecting a state of market equilibrium. As a result, the reduced sell-side risk suggests a lower volatility environment, which often precedes a period of heightened volatility.